Abstract

A blockchain enabled power system for reliable delivery of service and payments is the need of the hour. The ongoing technological developments within and outside the sector and a common demand for a fully secure and robust transfer of value across the industry have aided the rise of blockchain. In this paper, we have tried ascertaining the suitable blockchain based platform for the utilities to operate in the best possible manner. The intrinsic qualities of the blockchain offer wider applications to be built upon it by ensuring the integrity of the network by removing any third party. We seek to tackle the existing challenges of the blockchain technology by strategically removing the roadblocks to its success.

Introduction

The world is entering into a new phase of technological disruption led by blockchain which has found its application in products and services varying from land registry to ride sharing services and nearly real time remittance system. With the ongoing chain of events involving the blockchain technology, even utility industry seems to be affected. The utilities have shown enthusiasm regarding the prospects of blockchain in the sector. What essentially empowers blockchain is its key elements. The blockchain which is getting the wider acknowledgement just like what Internet observed in the past is set to enter into main applications stage. A brief and simple demonstration of how blockchain could be used to pay electricity bills can be illustrated.

A consumer decides to pay electricity bills to his utility. He accesses his account in the blockchain through public key and private key. The private key is the secret number or password required by con-sumer for using or accessing his account for using the digital asset owned by him whereas public key will be an encrypted value provided by the utility which will act as an address. The transfer of value is broadcasted to the blockchain network once both the parties are able to verify each other’s identities. This is done using digital signature. A digital signature is a digital code or a mathematical technique used to validate the authenticity and integrity of the contents and the sender's identity.

A transaction is a transfer of digital asset that is broadcasted to the network and collected into blocks which are files recording transaction data permanently. A transaction typically references previous transaction outputs as new transaction inputs and dedicates all input digital asset values to new outputs. Transactions are not encrypted, so it is possible to browse and view every transaction ever collected into a block. Standard transaction outputs nominate addresses, and the redemption of any future inputs requires a relevant signature.

The script containing signature & public key, index and hash (the value generated by a hash function which is used to map data of arbitrary size to data of fixed size) of previous transaction will constitute a Transaction Id when the transaction will be propagated throughout the network. It is essential to ensure the veracity of a transaction as the sender must at least possess the amount to be sent in a transaction. To ensure that only the unspent transactions (UTXO) i.e. the one that can be spent as an input in a new transaction are employed, the network must authenticate it.

On its successful completion, the transaction will be broadcasted to the network but to get it added to the records it must be processed by miners. Miners are special nodes using software that accesses their processing capacity to solve transaction-related algorithms to validate the block and its transactions. They take the information in the block, and apply a mathematical formula to it, turning it into some data. This data is a far shorter, seemingly random sequence of letters and numbers known as a hash and the process is called hashing. This hash is stored along with the block, at the end of the blockchain at that point in time. It’s easy to produce a hash from a collection of data like a Bitcoin block, but it’s practically impossible to work out what the data was just by looking at the hash. And while it is very easy to produce a hash from a large amount of data, each hash is unique. If just one character in a block is changed, its hash will change completely.

Miners aren’t supposed to meddle with the transaction data in a block, but they must change the data they’re using to create a different hash. They do this using another, random piece of data called a ‘nonce’. This is used with the transaction data to create a hash. If the hash doesn’t fit the required for-mat, the nonce is changed, and the whole thing is hashed again. It can take many attempts to find a nonce that works, and all the miners in the network are trying to do it at the same time. That’s how miners earn their rewards.

But the protocol in the network won’t just accept any old hash. It demands that a block’s hash has to look a certain way; it must have a certain number of zeroes at the start. There’s no way of telling what a hash is going to look like before you produce it, and as soon as you include a new piece of data in the mix, the hash will be totally different. The validation scheme or consensus mechanism employed by the protocol is called Proof of work. Therefore it is a piece of data which is difficult (costly, time-consuming) to produce but easy for others to verify and satisfies certain requirements. An alternate consensus mechanism is Proof of stake in which the probability of mining a new block of transactions for miners is in proportion to the amount of digital asset held by these miners - someone holding 1% of the Bitcoin can mine 1% of the "Proof of Stake blocks".

This validation procedure will result into the alignment of all the arrived transactions into a block by a process called mining to form a Merkel root which is the final hash resulting from the paired combination of hashes of all the transactions within a block. Then, it will be sent for verification by active nodes (computers connected to the network) so that the block can be connected to the longest blockchain prevailing. If the required conditions are satisfied by the Merkel root, the nodes will accept the block else the block will be rejected and the process of mining will continue until the conditions are fulfilled. The block chain is a transaction database shared by all nodes participating in a system and the net average time required for block formation is called block time.

The utility will get the confirmation of payment received. In this way, the credit transfer becomes easy with no intermediary intervention.

Flowchart of Operation

Drivers of Blockchain in Utilities

Unprecedented changes in the technological landscape have propelled the usage and acceptance of blockchain in uncharted territories of applications from remittance and financial services to land registry and e-voting. Concepts such as Internet of Things (IoT), e-governance and cyber-security have provided the impetus for blockchain technology to prosper. Some of these technologies have been instrumental in the rise of blockchain as a disruptive technology.

Internet of ThingsInternet of Things empowers billions of devices to communicate and transfer information to

each other in the same manner as the Internet of people works. At present, there are more than 10 billion connected devices. The number of connected devices is expected to be in excess of 25 billion by 2020 and may reach more than 100 billion by 20501. But IoT will be suffering from the same deficiencies as our Internet if value cannot be transferred in a secure, transparent and decentralized way. IoT is essentially a mechanism to empower devices so as to reduce human intervention and errors resulting from the inefficiencies attributable to human error. Simple transfer of information from device to device would only undermine the vast potential of IoT. IoT needs to be complemented by the blockchain technology to transfer value across the network and aid the development of Internet of Things Applications (IoTA). Therefore it only seems logical to develop a seamless partnership of Internet of Things and Internet of Value to assist the development of Internet of Things Applications (IoTA). Internet of Things in conjunction with Internet of Value will be a precursor to concepts such as Automatic Decentralized Mobilization of Devices (ADMoDe) and Democracy of Devices (DoD).

E-governance and DigitizationThe advancement towards e-governance and e-democracy is already the focus of several

economies in the world. The Estonian government has been experimenting with distributed ledger technology for a number of years using a form of distributed ledger technology known as Key-less Signature Infrastructure (KSI), developed by an Estonian company, Guardtime. KSI allows citizens to verify the integrity of their records on government databases. It also appears to make it impossible for privileged insiders to perform illegal acts inside the government networks. This ability to assure citizens that their data are held securely and accurately has helped Estonia to launch digital services such as e-Business Register and e-Tax. These reduce the administrative burden on the state and the citizen. Estonia is one of the ‘Digital 5’ or D5 group of nations, of which the other members are the UK, Israel, New Zealand and South Korea2. The move towards this digitization of services offered by the government agencies will save valuable time and billions of dollars. Every digitally connected citizen will be able to avail to the basic benefits offered by their government and local bodies. The painstaking task of manually collecting the data from home to home and from citizen to citizen will be overridden by online collection of public information. Utilities have long been offering solutions to customer grievances and complaints in the digital space. The gradual shift towards digitization on the part of utilities would transform physical assets into digitally controlled entities capable of transferring non-duplicable value and operating under predetermined conditions as in smart contracts. These contracts are the code able to self-verify their own conditions using data & self-execute by releasing payment while remaining tamper resistant. This move towards digitization and e-governance will indeed provide the much-needed shot in the arm required by blockchain technology to flourish.

Cyber-securityValuable information of billions of internet users are at stake due to the exponential rise in

cybercrimes. There are currently just over 3 billion internet users, 3.3 billion smart phones, 8.8 zettabyte data and 16.3 billion IP-connected devices. The threat of cybercrimes and the misuse of data will only grow in near future. By 2019 there are going to be 4 billion users, and 24.4 billion IP-connected devices. By 2020, 5.9 billion smart phones and 44 zettabyte data are going to be present3. All these devices, data and users will be prone to cybercrimes. In the 2015 Cost of Data Breach study by IBM and the Ponemon Institute, the average total cost of a data breach increased from $3.52 million in 2014 to $3.79 million. Another study states that the cybercrimes will become a $2.1 trillion problem by 20194. Since IoT will enable transfer of valuable information through M2M transfer the participating devices and the associated information need to be protected from cyber threats. Perhaps, the best solution to such threats could be provided by the blockchain due to its inherent immutability and ability to prevent double-spending. In essence, the user can secure any asset ranging from intellectual property rights to military secrets. Power utilities would be able to transfer and store critical information about

industrial clients, targeted markets and domestic consumers for their intended use.

Trust-less TradeInaccurate judgment and failure to recognize profitable ventures have been detrimental for

frictionless transactions and agreements in commercial digital platforms. There were about 38.5 billion transactions on e-commerce site in 2015. The revenue in the e-commerce market amounted to almost 1.78 trillion dollars in 2015. User penetration is at 38.50% in 2016 and is expected to hit 49.72% in 20203. This implies that almost 50 % potential consumers can be captured if issues such as trust can be resolved. Reeling from the flattening of demand and complexity in regulatory procedures power utilities need to target new markets and consumers. This is essentially true for power utilities in the North American and European markets. The challenge of lower reliability of online transactions due to the growing threat of cyber-attacks needs to be tackled. This need for a reliable mechanism to ensure security of transaction has given a huge boost to the development of blockchain based platforms and technologies. The use of blockchain technology permits the parties to participate in any bilateral process including escrow transactions and multiparty signature agreements of any commercial significance without any third party arbitration and provenance.

Sharing EconomyThe Sharing Economy is predicated upon maximizing asset utilization by monitoring

availability and adjusting for demand in real time. By securely credentialing both guest and host information and ensuring the accuracy of reputation information, blockchain can be used to streamline user experience and increase safety and trust in P2P lodging. Ultimately, there is potential for a “social blockchain” database that aggregates social credentials and authenticates previous transactions, effectively helping users carry their “social and trust credentials” across merchant platforms. Blockchain could help P2P lodging sites (Airbnb, HomeAway, FlipKey, OneFineStay, etc.) accelerate their growth rates, which could have significant implications for the hotel industry. A 2014 PwC report shows that Sharing Economy sector will transform into a $335 billion economy by 20255. According to an online survey of 30000 consumers in 60 countries in 2013 almost, 68% of online consumers were willing to share their own assets while 66% were willing to share from others6. Utilities can benefit from this growing market by renting ancillary services from a number of remotely separated independent service providers to increase service coverage. Cloud services offered by Storj and carpooling services offered by La'zooz are examples of how sharing economy might be complemented by blockchains. This highlights the vast potential of the sharing economy which can be unlocked using the blockchain technology.

Advanced Computer ApplicationsOne technological advancement succeeds the other and this process is ongoing and endless. The

preceding technologies set the stage for the succeeding ones. This is true for every technology including blockchain and the technological landscape seems adamant to unleash the potential of blockchain. Take for example the use of cloud platform to build newer blockchain based applications. Blockchain as a Service (BaaS) provides a rapid, low-cost, low-risk, and fail-fast platform for organizations to collaborate together by experimenting with new business processes—backed by a cloud platform with the largest compliance portfolio in the industry. In the near future cloud computing itself might be usurped by this technology. In fact, it has already begun replacing cloud computing. An American company Storj Labs from Atlanta, Georgia has launched its service as an open beta in Berlin. Storj offers not just distributed data storage to everybody but allows users to create decentralized applications. Companies have used Storj API and made demos of an image viewer, a .txt and .pdf viewer, a music player and a video service to handle documents in this new blockchain cloud.

Uniqueness of Blockchain

The power utilities across the world are facing unforeseen challenges in the wake of current global scenario where the consumer demand is falling and there is an urgency to modernize the age-old infrastructure. In addition to these difficulties faced by the power companies, there is a growing threat of stringent regulations amid rising demands for reduction and phasing out of coal, nuclear and gas power plants. The emergence of microgrids and evolution of renewables has only made it harder for the utilities to survive this onslaught. The dwindling balance of revenues and failure to reduce losses have been major setbacks for the players in the power sector. In the liberalized energy markets, unable to retain customers has been a key area of concern for the power utilities.

The herculean task of reshaping the fate of the power sector can be accomplished by disruptive technologies like IoT and advanced robotics. But nothing seems more potent than blockchain. The inefficiencies and losses of the system in place can be overcome by the tactful application of blockchain technology. Not all problems can be solved by using blockchain but energy transactions and tracking can certainly be made much easier and faster.

Early adopters of this technology in the sector have been testing numerous applications on Ethereum platform. RWE and LO3 Energy have admitted using Ethereum in their respective endeavors in blockchain enabled recharging of automobiles and microgrids respectively. A further study suggests the suitability of Ethereum platform in power utilities. The comparative study of various applications of blockchain technology in different sectors suggests that the platform required for the power sector should be unmatched in flexibility, security, reliability and speed. The application of blockchain in the power sector undoubtedly adds the greatest value in terms of service provided to the intended consumers. Since the viability of Ethereum has been proven and tested repeatedly before it would only be logical to use Ethereum for utility-based projects. A brief comparison between Ethereum and other popular blockchain based platforms employing smart contracts is given below:

PLATFORM ETHEREUM RIPPLE COUNTERPARTY

COLORED COINS NXT

ATTRIBUTES SIGNIFICANCELARGE NO. OF

NODESNetwork security 4417 109 -  -  238

HUGE NETWORK SIZE

Network reliability 341045 198487 12827 22165 90000

MINIMUM BLOCK TIME

Speed of operation 14.3 0 600 - 59

CONSENSUS Validity of transac-tions Proof of Stake Supermajority Proof of Burn Proof of

WorkProof of

Stake\Forging

ORACLE USE Sound execution of contracts Oracle Smart Oracle Oracle

-  - 

TURING COM-PLETENESS User friendliness

Turing com-plete lan-

guage- 

Built in Turing Complete lan-

guage compatible with Ethereum

script

 - - 

USE CASES Wider acceptance in real world

Programmable Smart Con-

tracts,Monetary Sys-

tem,Decentralized Applications(Dapps), De-centralized

Autonomous Organizations

(DAO)

Free Infrastruc-ture Technol-

ogy, Securities or cryptocurren-

cies

Asset Exchange,Programmable

Smart Contracts

Smart property

Asset Ex-change

Monetary System

Smart con-tracts &

copyrights

Asset Ex-changeVoting

Smart Prop-erty

The comparison above reveals the superiority of Ethereum in wide array of applications including utilities.

Real-time SpeedEthereum specializes in real-time transactions and the block time for this platform is almost 14 seconds on an average. This could be of immense use in the power industry for real-time applications including monitoring of consumer load and assets. Load forecasting becomes simpler and more predictable as compared to traditional methods. Transfer of information at a faster rate results in faster operation. It is possible to interface SCADA with blockchain to derive meaningful data regarding Therefore, the property to process fact or transaction at a higher rate could enhance quality and finally contribute towards maintaining the grid reliability. This special quality of blockchain can be applied for development and operation of a vibrant energy market, especially real-time and day ahead market.

Computationally Universal CodeThe utility industry is dynamic and so are the parameters to be dealt with in the electricity grid. There are rapid changes in consumer preferences and regulations happening across the sector. It would be premature not to accommodate the changes occurring around. The Turing-completeness of the code in

the Ethereum could simulate any possible situation and carry out every executable task operable by any other system with the availability of required resources. This allows the developers to make the necessary changes to facilitate additional activities in order to optimize the whole operation. In other words, Turing-completeness offers flexibility to make adjustments corresponding to the demand and expectations of the consumers while securely operating the grid in accordance with the existing regulations.

Practically Impenetrable Security Security has always been the hallmark of the blockchain technology or so it seems. But a deeper study of how blockchain functions reveals that there exists a trade-off between speed and security. It should not come as a surprise that the dynamics of the utility industry demands security and speed at the same time. The Ethereum platform is designed in such a manner so as to address this impending concern of compromising speed for security and vice-versa. It is based on a protocol known as the GHOST protocol which ensures safety of the network at higher speed of transactions.

Another major concern in other blockchain technology is the rising transaction fees and rewards for mining. This is particularly painful for cash-strapped utilities who are unable to pay exorbitant fees to ensure safety and reliability of the network. It only makes sense to accept such technologies addressing the economic realities of the industry. Ethereum does exactly that as the transaction fees are rationally and reasonably charged. If the policy of invariable block reward is followed by the Ethereum developers, then there could be massive drops in additional transactional costs incurred by the utilities and consumers.

Prevention of Centralized MiningThe greatest threat to the security of blockchain might be the overwhelming presence of a majority mining pool using ASIC devices which is negated by the Ethereum platform by using Ethash hashing algorithm. This algorithm acts as a deterrent to the growing centralized power of mining pools in the network and effectively canceling any additional advantage provided by the ASIC devices over normal GPUs and CPUs. This can be an asset for those utilities willing to add immutability to their blockchains through independent miners.

Compliance with AgreementsCompliance and adherence to contracts and agreements has long been a weak point for the power utilities and their counter-parties. Backtracking and deviation from the original contract is not a rare phenomenon in the industry. This causes a huge deficit of trust between the two parties involved in the agreement which could cause delay in execution of projects and in some cases abandonment of the project or venture altogether. Similarly, default in payment by the consumers has been nothing short of a headache for the power companies and it seems like only blockchain could provide the solution to such a problem. The answer lies in the form of smart contracts which provide unbiased execution of agreement with assured compliance or compensation. Smart contracts work on the principle, “code is law.” According to this concept, the smart contract itself is executable and requires no external authority for imposing the terms and conditions of the contract. It is automatic and sustainable and requires no contact with the initiating agent for execution. Smart contract need to be coded with an expiry date as the contract itself is immortal.

Use of blockchain in Finance and Utilities: Comparison

Unlike the finance sector where the security of transactions is prioritized at the expense of speed, the power sector cannot promote one at the cost of the other. Any financial transaction could wait for a minute or two as long as the security and reliability of the transaction are maintained. Therefore Bitcoin as a cryptocurrency has been successful although the average block time is around 10 minutes. Another

major difference between the nature of blockchain in finance and power sector is that what financial institutions normally prefer is a private blockchain. In reality, they are pseudo-blockchain in nature and are nothing more than a permissioned ledger. They lack immutability of transactions which can only be achieved by mining. Therefore, the permissioned “blockchains” do not conduct mining activity. Ripple is an example of such application using permissioned distributed ledger for financial institutions. In addition to this difference, the transaction may be monetary or non-monetary in nature in case of utility industry but in finance, the nature of transaction is always monetary. Similarly, the application and nature of blockchain differs from sector to sector although the underlying technology is same in every case.

Use Cases

The distinct features of the blockchain enable the developers to design exciting and valuable applications more popularly known as decentralized applications (DApps). There is no defined limit to which the technology may be leveraged to provide solutions to problems persisting in various industries. Imagination is the only barrier. But it would be extremely useful to evaluate the necessity of different applications in different sectors.

A ubiquitous presence of blockchain based startups in e-commerce space has encouraged technology giants such as IBM, Google, Microsoft and Linux to pour millions of dollars into the development and testing of decentralized applications (DApps) based on blockchain technology. Blockchain as a Service (BaaS) is offered by Microsoft Azure, an open source cloud service platform and Autonomous Decentralized Peer to Peer Telemetry (ADEPT), which uses the blockchain database to build a distributed network of devices - a sort of decentralized IoT, by IBM and Samsung. Hyperledger Project is a collaborative effort by the members of Linux Foundation created to advance blockchain technology by identifying and addressing important features for a cross-industry open standard for distributed ledgers.

The trend of jumping into the blockchain bandwagon as illustrated by multinational behemoths suggests that an unprecedented rise in application of this new piece of technology is going to persist for several years to come. Predominantly the majority of applications have been associated with financial services and data storage. However, what cannot be currently realized by many is the vast potential that

lies in the utility sector if blockchain is applied here. Utilities could find use cases of blockchain in almost every stage of the value chain.

Blockchain in Generation

In highly developed markets, distributed generators are compensated much below the retail rates by the utilities. This trend may drive away the distributed producers with solar set-ups from net metering and encourage them to start consuming more power themselves or think of ways to sell it to other consumers. Assuming, if other consumers had an opportunity to buy electricity from distributed producers at US$0.13, which is 10% discounted compared with the retail price, then there will be a big opportunity for distributed generation. Distributed producers would be compensated at much better rates and opportunity is quantified at US$6.9 billion. If producers sell it at US$0.10, a price in between avoided cost and a 10% discount to the grid price, then the opportunity available will be US$5.1 billion12.

Lo3 Energy in collaboration with Consensys System is employing an Ethereum-based platform in a project named TransActive Grid in Brooklyn, New York. LO3 energy is providing the trading platform and Consensys its Ethereum-based blockchain application. The inherent attribute of smart contracts is executing the real-time financial settlement. It is helping the economically justified transfer of solar energy between neighbors. The supplier and consumer act as a nodes in possession of smart meters. This meter will take account of the energy feed or utilized by the node. They will be controlled by the smart contracts conditions which will accordingly redirect the credit to the respective nodes in an immune, reliable and transparent way.

Blockchain has brought a paradigm shift in the field of energy credit management. Blockchain is paving the way for a smooth energy transaction. SolarCoin (SLR) is made exclusively for encouraging the production of green energy especially solar energy. It is a bitcoin-based technology where the computation based proof of work is partly replaced with actual physical transfer of solar energy. This mechanism ensures the reliability and authenticity of fund exchange. A generator exchanges their generated power with utility in the form of Solar Renewable Energy Certificates (SRECs) which can be further traded by SLR foundation for SolarCoins. Any solar panel owner involved in the solar power can feed his/her generated output to the electric grid belonging to a utility and can receive the Solar Renewable Energy Certificate (SREC) in exchange. This essentially makes these solar panel owners prosumers. These SRECs can further be traded for SolarCoins which are provided and managed by SLR foundations' Open Currency Association (OCA). The received coins can be used for purchasing goods and services. Every SLR represent a unit of MWh solar generation. With the advent of time, its adoption and value will increase which will promote more solar energy. It will help utility in fulfilling their renewable generation obligation and will usher an era of green energy. Pegging of SLR with reference to SREC ensures its wider applicability as the earned coins can be invested anywhere in the world backed up by non-variability in its value.

Intermittency in renewable is a great cause of concern. This can be eliminated by gathering vast amount of forecasting data which will help in shifting the consumption pattern accordingly. A company, 21 Inc. has provided a solution in this consideration. It enables every sensor to become a part of data trading mechanism. The sensor will provide the required information and act as a passive source of income. All the data so acquired will be transferred to the party in need of it (utility in this case) via IoT and sensor’s owner will receive the micropayments using blockchain in return. The data will be sold on 21’s Open marketplace. So, the utility can make the most out of such data which includes weather data, pressure, temperature, moisture, pollution level, radiation, etc. at a distance. The outsourcing of data will help them focus on their core competency.

Blockchain in Transmission and Ancillary Services

In a futuristic scenario, all electricity consumers and producers within a community will be connected in a mesh topology through wireless or wired networks. IoT-based sensors, placed at every node, will relay information regarding energy produced and consumed along the network. This will allow real-time visualization of energy demand/supply, allowing energy peers to coordinate and close energy purchase agreements. All happening according to their mutual price negotiations, through secure blockchain ledger. Such ‘smartgrids’ will offer the best situation for using public blockchain where end node users are completely unknown to each other.

Blockchain has established itself as a panacea favoring excellent asset tracking management. Gathering data from farms, mines, oil platforms, suburban residences and other remote or highly secure places is a day to day task for utilities. Asset maintenance is a costly affair but one that is necessary. The benchmark optimal cost for maintenance is about 10 to 15% of the total costs13. The data is essentially for manufacturing firms but is representative of utilities as well. The EPA estimates shows that utilities will require a spending of $334.8bn over the next 20 years on infrastructure needs14. Monitoring remote assets like oil wells or mining equipment is expensive whether the utilities are using people driving around to manually check gear or trying to use sensitive electronic equipment and a costly satellite internet connection. Instead what can be done is to install a rugged communication device and sensors to enable communication and data transfer between the interconnected devices for acquiring information regarding the connected assets such as electric poles and transformers. Filament, an American blockchain based company, is doing exactly that. The company is renting its sensory devices to those power utilities which have remotely located consumers. An American blockchain based startup, Filament, is proving to be a game changer, working in the pursuit of enabling the connection between sundry entities using wireless mesh networks. Its objective is to connect every elements whether digital or physical to an autonomous and distributed network which can set the ground for a resilient distributed IoT. All entities interact with each other by employing the self-executing characteristics of smart contracts rooted in the Ethereum platform. The firm supplies Taps devices which contains cryptographic chips and radios for communication.

Blockchain in Trading

NASDAQ, a stock exchange behemoth, launched Linq in Oct 2015 to provide an immutable record keeping and trading platform. It helps utilities trade Solar Energy Certificates. The procedure starts from the generation stage. The solar panel can be linked online to IoT by the service provider Filament. A converter will be connected to measure the wattage feed into the grid. The Linq API will generate a cryptographically verified anonymous solar certificate in correspondence with the in-feed energy. These certificates can be traded on NASDAQ by any entity who either want to fulfill renewable purchase obligations set by the regulators, balance out the carbon emissions or want to subsidize solar energy. Since trading platform is a crucial battleground for producers and suppliers, the utilities will also look for a vibrant energy market where actual transaction of energy can take place and they can conduct business in the pattern of large energy exchanges such as Nord Pool.

In the foreseeable future, most electricity consumers and producers within a community of completely interconnected network of wired or wireless connections will be able to interact with each other. IoT-based sensors, placed at every node, will relay information regarding energy produced and consumed along the network. This will allow real-time visualization of energy demand/supply, allowing energy peers to coordinate and close energy purchase agreements. All happening according to their mutual price negotiations, through secure blockchain ledger. Such ‘smartgrids’ will offer the best situation for using public blockchain where end node users are completely unknown to each other thereby facilitating much-desired trust-less trade.

Blockchain in Distribution

The impact of blockchain on the financial sector can be seen as its natural adaptability in monetary transactions and in this regard it would only be appropriate to use blockchain for metering and billing purposes. The surety of transactions could be a motivating factor for the utilities and microgrids to adopt this revolutionary technology. It is no surprise that the early adopters of this technology in the energy sector are using it for billing purposes. LO3 Energy is already using the blockchain designed by Consensys for financial settlement of energy transfer between the participants in the TransActive Grid Project in Brooklyn.

Bankymoon, a South Africa-based company has taken a huge stride in the metering technology. The company through its project named Usizo, is providing a remote meter top-up capability which has been achieved by the set-up of blockchain enabled Bankymoon meters. These meters are located in the premises of schools where any person irrespective of their location can pay in any cryptocurrency which will ultimately fund the water and electricity needs of those schools. Every meter is linked with some digital wallet address which empowers the consumers to reap the benefits offered by the blockchain structure. This could be an efficient way to apply blockchain in energy credit management and billing. The distribution business could benefit from such secure and reliable mechanism and prop up collection efficiency to greatly reduce commercial losses.

Blockchain in Energy Retail

According to a report by The Goldman Sachs, an estimated opportunity between US$2.5 billion to US$6.9 billion is available for blockchain industry in distributed energy sales. Solar rooftop penetration would rise from 1% to 5%15. Average retail electricity price would rise from US$0.10 to US$0.14 per kWh12. Distributed energy generators don’t require transmission lines investment, avoided cost in the case is equal to the cost of generation, which is estimated to be around one-third of the retail cost. This creates an excellent opportunity for energy retail business to recreate a better business solution to maximize profit by removing the need of large wholesale power producers and filling the gap with large number of smaller distributed energy generators. The cost of purchasing power from a number of distributed sellers will be competitively low and at par with a single large power producer. But the additional advantage of buying from these distributed generators is that the energy can be locally supplied to other consumers in the same area as the energy source and the line losses can be reduced significantly. Energy retailers can even provide services such as asset and supply management to the distributed energy generators for higher efficiency.

According to the report, if avoided cost of $0.05 is chosen by distributed generators to sell their excess electricity, there would be a US$2.5 billion opportunity for the blockchain industry12. This is worst case scenario, considered due to increase in pressure from utilities on decreasing net metering credit rates.

Blockchain in Consumer Services

Assets can really be considered as potent mediums that pump revenue into the utilities, actively sustain their day to day operations and create opportunities for future revenue generation. Asset optimization can be a key to revenue creation and maximization. It is a well-known fact that a standstill asset is worthless. This situation can be easily tackled by renting the assets for a price.

With its motto of ‘Smart, Safe and Secure’, a Germany-based blockchain start-up Slock.it which basically deals with smart contract related projects (most notably Ethereum based DAO), is working in this regard. They are trying to facilitate the transformation of solar panel owners into service providers. Electric vehicle (EV) owners can be the first beneficiaries. This solution involves an electric PV panel owner and an electric vehicle (EV) owner. PV owner who owns the charging platform will rent it to EV

owner in return of credit rewards. The whole mechanism will be backed up and executed by the smart contracts embedded on the Ethereum blockchain platform. The contract will ensure the unlocking of the underlying facility (charging provision in this case) at the moment the payment will be made. It is expected to be approximately on a real time basis. This process will result in fast, non-centralized and trustless sharing economy while creating a solid base for economy of things in the near future.

Wattcoin, an energy start-up in California is a software company which is linking the financial gap between consumer and the utility. It is catering to the needs of utility by providing ‘Platform-as-a-service’ (PaaS) which can be employed by an annual contract or revenue sharing contract options. Wattcoin is based on Microsoft Azure cloud whereas Ethereum platform is used for credit trading and certificate exchanging. It is helping the utility in the following field-

i. Incentive programsIt is facilitating loyalty program by its implementation and fulfilling regulatory requirements to facilitate smooth and fast peak load reduction and on demand response. It is a serious issue for utilities as efficiency enhancement programs are grappling with the lack of customer’s participation which is as low as 5-15%16. Wattcoin Rewards is an entity working for it.

ii. PaymentsIt has built payment solutions and financing models for an optimum ROI. It can help off-grid companies to clear their finances in shorter time. Wattcoin Pay provides a helping hand using Ethereum platform to link willing to help developed nations to the underdeveloped world in their attempt to build microgrid projects.

It is just the starting of a new venture as multiple new arrivals are fledgling to make their marks in blockchain energy sector. Grid Singularity, an upcoming startup, is taking steps for simplifying energy transactions authentication and laying the stone for ‘pay-as-you-go’ scheme.

In addition to this, Bas Nederland has started using bitcoin as a mode of payment. It is trying to make people self-sufficient who can become their own value creator. Their campaign of ‘Road to zero’ is a step in this direction.

Essentially, it turns out that the use of blockchain technology could gain traction in the following five areas:

i. Tracking of Utility Assets

ii. Billing

iii. Promotion of green energy

iv. Energy credit management

v. Asset optimizationSolarCoin

Challenges of Blockchain in Utilities

It might seem as a good idea to engage in the exaltation of blockchain technology and promote adoption of this technology in every sphere of life but owing to the nascent state of this technology it would be unwise to do so. The risk inherent in blindly accepting such a technology would be too great. Though widespread propaganda about the complete interoperability and scalability about the blockchain technology is rampant even in scholarly articles and reports let alone blogs and social media, it should be crystal clear that not every application of blockchain might be economically feasible and pragmatic. Some blockchain based technologies allow users wide variety of applications and they are to an extent highly scalable and interoperable. But it would be a good idea to first outline the requirements of the business and then find solutions to the problems rather than finding applicability of blockchain in every single business problem. Despite its wide applicability and advantages, blockchain does face some stiff challenges in its implementation especially in the utilities.

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Economy efficiency trade-off

The security and reliability inherent in the blockchain network come at a cost in the form of transaction fees and rewards claimed by the validating nodes in the network. These nodes are generally called “miners” for a purpose as they expend computational power of their devices resulting in high consumption of electricity and get paid for each valid block formed and accepted by the majority of nodes in the network. In doing so the participants in the network shell out some kind of economic reward in the form of transaction fees which goes to the “miners”. The Bitcoin blockchain incurred more than $600 million in 2015 as transaction costs and block reward17. In relation to its adaptation in power utilities, the blockchain technology could be economically unfeasible for utilities with smaller customer base and human resources especially if immutability of transactions is to be maintained. On the other hand, larger utilities may be able to capitalize on their wider customer network and availability of resources.

Larger participation calls for higher number of nodes. Higher number of nodes increases the competition among the miners leading to a large number of “orphan blocks” which are the blocks that don’t have a known parent in the longest block chain. Due to the simultaneous addition of blocks on top of the existing valid chain and the parallel chain with orphaned blocks the network might switch over if higher hashing power resides on the alternate chain thereby rendering the current valid chain obsolete. This increases risk within the system due to higher chances of double-spending. Such volatility might undermine the reliability and integrity of the system. The only way to prevent this is to delay the transaction period or the block time. But due to real time operations in the power sector, especially in ancillary services pertaining to transmission, scheduling and dispatch, the transactional speed cannot be sacrificed as efficiency may reduce significantly.

Resistance from regulatory bodies

Due to the very nature of the blockchain technology, the regulatory bodies and institutions have been skeptical of blockchain and its applications. Most regulators around the world have been adamant regarding the adoption of blockchain technology in real world applications such as power and utilities as there seems to be an issue regarding the use of cryptocurrencies and digital tokens. Fortunately, some regulators have been able to explore the true potential of blockchain technology and have readily adopted it. Germany has made quick progress on this regard and provides somewhat reliable regulatory framework for functioning of blockchain based applications. With more than 1.5 million PV installations amounting to 38.5 TWh of solar energy18, Germany seems to have set the stage for blockchain in energy. But most regulators and government have failed to create favorable environment for utilities to tap the benefits of blockchains. Also without ample regulatory setup in place, the volatility in insecurity of using blockchain will persist within the general population (consumers) and the necessary boost for the development of the technology will be missing.

Transparency Competitiveness dilemma

Most of the potential applications of blockchain would not come to fruition if permissioned blockchains were not created. Organizations (including utilities) need to identify their clients and partners to bring in transparency, convey critical information and prevent conspicuous transactions. In addition to this, utilities would find it preferable to build private blockchains for their consumers and clients to offer them better services such as micro-payments, energy credits and non-peak hour incentives. Such consortiums are perfectly operational for two or more non-competing clients within the network set-up by the host utility. But a problem arises when there are competing parties within the same network. Suppose an energy trading platform is created for energy retailers and generators by using blockchain technology. Such consortiums with rival participants would not be able to address the issue of privacy and this could jeopardize the true spirit of competition among the participants.

Maintaining transparency within such networks of communities is an important affair which guarantees their security but at the cost of competitiveness. Even if utilities are able to create a fully-fledged blockchain for their customers and non-competing clients, it might still be unfeasible for themselves to participate in one due to limited number of participants in such blockchains.

Absence of Standard Protocol

Majority of organizations today prefer privatized blockchains exclusively for themselves. Lack of standard protocol like that of internet has created a rift between two entities willing to collaborate on common issues. This synergy drives innovation and productivity by creating a shared pool of knowledge. Inter-organizational collaboration on common issues could pave the way for ground-breaking technologies and evolution of market. So far, institutions (including utilities) have failed to address this issue and cross-industrial co-operation might be difficult visualize if the parties have different blockchains. Lack of standardization defeats the purpose of distributed ledgers, fails to harness network effects and can be less efficient than current approaches.

Resistance from Mainstream Utilities and Consumers

The utilization of smart contract in utilities seems evident if blockchain is to be used. Smart contract is self-executing and self-sustaining in nature and operates according to the code designed by the developer. Mainstream utilities may have to accommodate changes according to the current market scenario while complying with the regulations. The dynamism in the utility industry can make a positive or a negative impact on either of the counterparties and a win-win situation could really turn into a zero-sum game. Increase in fuel prices could raise the variable costs incurred by the power generators. This could be compensated by the power generators and retailers by hiking the prices but only if the smart contract permits it. If there are flaws in coding, either of the two parties might take advantages of this loophole. Instances such as these have occurred before and should not be neglected. The DAO, the distributed autonomous organization that had collected over $150m worth of the cryptocurrency Ether, was “hacked” on 17th June 2016, sparking a broad market sell-off. A leaderless organization comprised of a series of smart contracts written on the Ethereum codebase, The DAO lost 3.6 m Ether, which is currently sitting in a separate wallet after being split off into a separate grouping dubbed a "child DAO".Ether markets plunged on the news, falling below $13 in trading on the cryptocurrency exchange Poloniex. With Ether trading at roughly $17.50 per coin on the day of the attack, that put the value of the stolen cryptocurrency at more than $60m19. Events like these could undermine the integrity and security of the whole system. Hence, major utilities and consumers may not be too enthusiastic to adopt blockchain due to such possibilities.

Volatility of Cryptocurrencies

The speculation surrounding the cryptocurrencies could be a major problem if the utilities wish to adopt an open source distributed ledger or an open blockchain. In spite of all advantages such as low transactional cost for higher security, reliability and acceptance from a larger community the greatest setback for the utility would be the volatility in the prices of a widely used cryptocurrency such as Bitcoin or Ether. The value of service offered by the utilities could be undervalued or overvalued according to the current market price of the cryptocurrency being used. In this case, the business model adopted to accommodate the blockchain might not be profitable in comparison to the traditional model. Hedging of these cryptocurrencies could be a challenging task and the fluctuation in prices might be difficult to handle. The price of 1 bitcoin fluctuated from US $91.01 on 3rd May 2013 to US $1123 on 1st December 201320. This highlights the risk involved in adopting an openly traded cryptocurrency such as bitcoin.

Strategies

Creation of universal platform for blockchain based applications. Standardize every aspect ranging from the protocols and the stacks to regulatory and legal framework associated with the blockchain technology. Develop blockchains on the lines of Internet by keeping the true essence of decentralization intact. There must be some kind of coherence among all blockchain based applications so as to allow scalability and interoperability. A TCP/IP like basis is needed to create a de facto blockchain in order to provide the flexibility required for interoperability. Compatibility should not be an issue for blockchain based applications. In this regard, it would be preferable to create proper road-maps for real-world adoption. For utilities, it would be a much-needed platform to build upon applications for achieving higher performance through greater consumer experience and lower expenditure as compared to traditional technologies. Inbuilt architecture of blockchain would propel the utilities to design applications according to the customer needs and market conditions on top of it.

Discover new realms in the backdrop of existing blockchain technology. While most business firms may be hesitant to indulge in experimentation it would be worthwhile if they do so. Due to aging infrastructure, flattening of demand curve, high peak demand, regulatory challenges, competition from microgrids and rise of renewables the utilities are being pushed to the limit. The only way to break free from this tangle is to develop an innovative mechanism to solve their existing problems. It would only be a waste to use blockchain for billing and metering purposes. Greater opportunities lie in areas such as creation of a decentralized wholesale energy market, ancillary services for higher grid stability, operation of community microgrids and formation of consortium of isolated microgrid operators. This involves considerable investments on research and development of blockchain enabled applications suited to carry out the intended tasks.

Cooperate with cross industrial players to implement new ideas. It will be rewarding for the cross-industrial collaborators to channel in their combined resources to find optimal solutions to existing problems through blockchain technology. Profitable ventures could be initiated by applying unique solutions. It is hardly a surprise that tech giants like Samsung and IBM are working as partners in the implementation of ADEPT which enables M2M (machine to machine) transaction rooting out any inefficiency caused by human interference. The members of Linux Foundation are already working on Hyperledger Project which is keenly being watched by the tech community. Utility industry could build a pact with innovative blockchain based startups such as Consensys and Filament or tech giants such as IBM to pave the way for profitable and sustainable business solutions. IoT implementation could require such massive collaboration among partners across different fields. Utilities could reap the benefits of IoT and blockchain in asset maintenance, tracking and provenance.

Selection of conducive solutions. Instead of trying to fit a square in a circle it would be wise to evaluate the possible solutions to a given problem. Utilities must understand that it would not be justified to expect the blockchain to solve every single problem in the world. Blockchain can’t solve all the world’s problems especially those that are beyond the reach of technology. At the same time, it is theoretically possible to breach the security of a blockchain under certain circumstances such as when the total hashing power or hash rate of a malicious participant attacking the network exceeds the combined hash rate of the remaining number of participating nodes. It is evident that some use cases will fail – but redirecting efforts where they can yield the most payback will be essential. Use cases with real value for end users are essential. Also, using blockchain where a simpler technology would solve the problem (e.g. a database) will just lead to a suboptimal result. Utilities should look for business networks, markets, counterparties and asset transfer activities where provenance, auditability, consensus and finality are important. For example, any utility planning to adopt blockchain based payment system for their consumers should design native digital currency or token pegged directly to the value of the service provided much like a food coupon instead of accepting open market cryptocurrencies such as Bitcoin, Ether or Litecoin. This will keep the volatility in the prices of the

cryptocurrencies at bay.

Plan and prepare for challenges and exigencies. It seems like a number of sectors will be affected by this incoming technology. Consumers and clients will also be affected by the blockchain phenomenon. Though these changes might not be felt straightaway, the impact will be monumental in the long run not only for the financial institutions but also for the utilities and public services. It is better to evolve now than to perish later. In this regard, a concrete plan for the future needs to be carefully drawn out by the utilities. If utilities fail to recognize the changes occurring in demand pattern and consumer behavior, growing dissatisfaction among the consumers will turn into a major problem for utilities. According to a 2016 report titled “Digitally Enabled Grid POV Utility Distribution” by Accenture, 57% of consumers in 18 countries would consider investing in becoming power self-sufficient and not having to buy energy from their energy provider and 45% of utility executives report facing significant to major issues with a traditional transportation model for distribution to provide a sound foundation to meet their distribution’s technical and financial challenges21. These issues could be solved using blockchain technology to operate and manage community microgrid allowing the consumers to attain autonomy. To be precise, thinking clearly about the possible impact and what it might mean, and formulating strategies to respond is essential. What could be the trends followed by the competitors and customers in the future and how blockchain could enable us to achieve our goals are two critical questions for the utilities.

Conclusion

The phenomenal rise of blockchain based startups in the distributed energy generation sector and the recent adoption of blockchain to enable Internet of Things (IoT) by iconic tech companies such as IBM and Samsung clearly suggests that in the next decade or two the blockchain technology could be used extensively in smart grids and wholesale energy market for power procurement. Large utilities such as RWE Energy are already experimenting with blockchain for large scale implementation in distribution and energy retail. With the advent of time, blockchain could find its wider use in ancillary services for grid stability. The transition in the technological landscape in the utilities could propel the use of blockchains and distributed ledgers to facilitate smoother transactions and better customer service. Commercial viability in the utility sector has always taken a hit due to deficiencies in revenue collection and customer retention. By upgrading the level of service and guaranteeing payment for it the blockchain technology will usher in a new era for utilities.

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